Maintain in Bond Yield bands: In our last fixed income report on 24 June 2019, we upgraded our expectation in the First Capital Economic Health Score, primarily supported by the successful issuance of US$ 2.0 billion sovereign Bond and possible further issue of additional Bonds amounting to US$ 2.5 billion to manage debt in 2020.

A surge in foreign currency reserves and stability in all other indicators may significantly strengthen macro economic conditions and reduce volatility of interest rates. Accordingly, we maintain our yield curve expectations in the Bond market for the next couple of months.

One-year yield at 3½-year low breaks FCR lower bands: Dips in the one-year yield have broken First Capital Research’s lower band by touching 8.38 per cent, a 3½-year low.

Yields dipped during the last few weeks, primarily led by Sri Lanka’s successful International Sovereign Bond (ISB) issuance of US$ 2.0 billion, offering tenors of five- and 10-year.

Following the issuance, foreign reserves exhibited a significant improvement, reaching US$ 8.8 billion as at end of June 2019. We expect reserves to be maintained above US$ 7.5 billion during August to December 2019.

Reduce exposure in low-yield Bonds: We recommend investors reduce overall portfolio exposure to 45 per cent from 60 per cent.

We recommend to cut 2021 and 2022 maturities of the carrying portfolio amidst the significant reduction in yields, while we also recommend an increase in 2023 and 2024 maturities in the trading portfolio amidst the slight rise in yields.

Additionally, we recommend the carrying portfolio be decreased from 50 per cent to 30 per cent, and the trading portfolio be increased to 15 per cent from 10 per cent.

Hiruni Perera, Senior Research Analyst, at First Capital on the bond and equity market forecast – 27.06.2019

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka. First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

By First Capital Research
Weekly Yield movement & Volume
The secondary market yield curve remained relatively unchanged, however, closing the week with a slight downward shift on the back of buying interest that stemmed mainly from local counterparties. On the back of continued buying interest, the short end of the curve dipped by 5-10bps, while the belly-end of the curve dipped by 10-20bps and the long end of the curve fell by 11-12bps.
At the primary bill auction, the three-month and six-month were accepted at a weighted average of 8.38 per cent and 8.60 per cent respectively, while the one-year was accepted at a weighted average of 8.86 per cent. The total offered amount of Rs 19.0 billion was fully subscribed with a bid-to-offer ratio of 3.22:1, recording a four-week high. In the forex market, the rupee appreciated marginally to close at
Rs 176.68 on 19 June, relative to
Rs 176.71 at the beginning of the week.

Liquidity and CBSL
Holdings
Market liquidity remained positive throughout the week to close at Rs 24.3 billion, while CBSL continued to drain out liquidity by way of term repo auctions during the week. CBSL holdings marginally declined to Rs 129.1 billion, relative to Rs 130.1 billion held at the beginning of the week.

Foreign Holdings
Foreign holdings in Government securities increased by Rs 311.0 million to record Rs 143.0 billion, while foreign holding percentage for the week was maintained at 2.6 per cent.

Maturities for next Week
The Government Security Market has a Treasury Bill maturity amounting to Rs 16.5 billion that needs to be settled during the week ending 28 June 2019.

Daily Summary
Friday (14.06.19): The secondary market yield curve remained mostly unchanged while overall market witnessed thin volumes. Limited activity was seen on selected maturities, with short end of the curve [01.05.20], [15.10.21] and [15.12.21] trading at 8.80 per cent, 9.80 per cent and 9.82 per cent-9.79 per cent levels respectively, while mid tenure maturities, [01.10.22], [15.03.23] and [15.03.24] traded at 10.00 per cent, 10.20 per cent and 10.33 per cent. In addition, on the long end of the curve, [01.08.26] traded at 10.50 per cent, [15.01.27] at 10.58-10.55 per cent levels, [15.06.27] at 10.64 per cent and [01.05.29] at 10.68 per cent.

Monday (17.06.19): The secondary market witnessed moderate volumes with limited activity, resulting in the overall yield curve remaining unchanged. Buying was mainly centred on short-tenor [15.10.21] and [15.12.21], resulting in yields dipping to day’s lows of 9.75 per cent and 9.76 per cent respectively. Furthermore, [01.10.22] traded at 10.00 per cent, while [15.06.27] changed hands in the range of 10.65-10.63 per cent. In the long end of the curve, [01.05.29] traded at 10.68 per cent.

Tuesday (18.06.19): The secondary market yield curve remained relatively unchanged with greater number of market participants remaining on the sideline ahead of the primary T-bill auction. Buying interest with limited activity was seen primarily centred on the following maturities, short-tenor [01.05.20], [15.10.21] and [15.12.21] traded at day’s low of 8.75 per cent, 9.74 per cent and 9.75 per cent respectively. Mid- to long-tenor maturities traded at their intraday lows with [15.03.22] trading at 9.92 per cent, [15.03.23] at 10.14 per cent, [15.03.24] at 10.26 per cent; in addition, [15.01.27] traded at 10.57 per cent, while overall market witnessed thin volumes.

On the shorter end of the curve, [01.05.21] and [15.10.21] maturities saw yields dipping to day’s lows of 9.50 per cent and 9.63 per cent, while [15.03.22] traded at 9.90 per cent. Mid-tenor [15.03.23] and [15.03.24] traded at 10.02 per cent and 10.17 per cent. Furthermore, [15.01.27] traded at intra-day low of 10.49 per cent. Meanwhile, at the primary bill auction, the six-month and one-year bill declined to 8.60 per cent and 8.86 per cent respectively, while the three-month bill remained steady.

Dimantha Mathew, Head of Research, at First Capital on the bond and equity market performance – 12.06.2019

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka. First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

First Capital is an investment bank providing a full range of financial advisory and services. The Company’s research delivers a heightened perspective in fundamental research aiding Share Market Investment in Sri Lanka. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis. With fundamental research coverage of 62 listed securities (reflecting approximately 65% market capitalization) across 15 sectors in Share Market Investment in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka. First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

Dimantha Mathew, Head of Research, at First Capital on the bond and equity market performance – 27.05.2019

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka. First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

The secondary market yield curve continued its downtrend on the back of heavy buying interest, primarily centred on the short to mid tenor maturities. Shorter end of the curve witnessed a decline in the range of 0-40bps while the belly-end witnessed a steep decline in the range of 45-59bps. Long tenors saw a dip in yields by nearly 30bps. The total secondary market turnover for the week from 16 May to 22 May amounted to Rs 54.4 billion. At the primary bill auction held on 22 May, the one-year bill yield was seen plunging below 9 per cent to reach 8.90 per cent levels after nearly 16 months with a steep drop of 28 basis points, followed by the six-month bill dipping by 17 basis points to 8.71 per cent. However, all bids received on the three-month bill were rejected with the total offered amount of Rs 20.0 billion being fully accepted.
Meanwhile, at the SLDB auction, out of the total offered amount of US$ 200 million, US$ 165.5 million was accepted with maturities ranging from one-year and eight-months to three-year and 11-months. In the forex market, the rupee appreciated slightly on 17 May to Rs 175.85 relative to Rs 176.04 on 16 May; thereafter, it slightly depreciated to close the week at Rs 176.59.

Liquidity and CBSL Holdings
Market liquidity remained positive throughout the week to close the week at Rs 19.75 billion, while CBSL continued to drain out liquidity by way of repo auctions during the week. CBSL holdings slightly declined to Rs 158.54 relative to Rs 160.28 held at the beginning of the week.

Foreign Interest
Foreign holding further decreased by Rs 433.1 million to record at Rs 143.3 billion. Foreign holding percentage dipped to 2.6 per cent from previous 2.7 per cent.

Maturities for next Week
The Government security market has a Treasury bill maturity amounting to Rs 14.4 billion and a coupon of Rs 23.1 billion that needs to be settled during the week ending 31 May 2019.

Daily Summary
Thursday (16.05.19): Buying interest witnessed in the secondary market led to a slight downward shift in the overall yield curve. while the market witnessed moderate volumes. Foreign buying centred on [15.03.24] at 10.41 per cent and on [01.09.28] at 10.71 per cent, while activity was witnessed on two mid tenure 2023 maturities ([15.03.23] and [15.07.23]) at intraday lows of 10.30 per cent and 10.32 per cent, while two 2027 maturities ([15.01.27] and [15.06.27]) traded at 10.68 per cent and 10.76 per cent respectively. Foreign selling was witnessed on short tenure [01.10.22] at 10.15 per cent.
Friday (17.05.19): The secondary market yield curve witnessed a slight downward shift fuelled by the continued buying interest, while the overall market witnessed high volumes. In the midst of buying interest, following maturities’ yields were seen decreasing to their intra-day lows, with short tenor [01.03.21] at 9.57 per cent, [01.05.21] at 9.65 per cent, [01.08.21] at 9.60 per cent and [15.12.21] at 9.68 per cent. Mid tenors [15.03.22], [15.03.23] and [15.07.23] changed hands at intra-day lows of 9.88 per cent, 10.25 per cent and 10.23 per cent, while both foreign and local buying were centered on [15.03.24] maturity, which traded at day’s low of 10.27 per cent. Moreover, [01.08.24] was seen trading at intraday low of 10.31 per cent, while both [01.08.26] and [15.01.27] traded at 10.60 per cent. In the long end of the curve, [01.05.29] traded at 10.80 per cent. In the money market, overnight surplus liquidity in the system stood at Rs 38.2 billion, while CBSL continued to absorb excess liquidity of another Rs 57.8 billion by way of term repo auctions.
Tuesday (21.05.19): The secondary market saw aggressive buying interest in the morning session, following the CBSL Governor’s indication of a likely monetary loosening at the next policy meeting. Short-tenure maturities reached intraday low on the back of buying interest with [15.03.22] trading at 9.90 per cent, [15.05.23] at 10.10 per cent, [15.03.24] at 10.05 per cent, [01.08.26] at 10.30 per cent and [15.01.27] at 10.36 per cent.

Ahead of primary bill auction, the one-year traded at 9.03 per cent, while the overall yield curve continued to shift down amidst buying interest, while the overall market witnessed moderate volumes. Profit taking was witnessed on [15.03.24] and [15.01.27] at 10.15 per cent and 10.50 per cent respectively. CBSL has offered Rs 20 billion consisting of all three maturities at auction.

Dimantha Mathew, Head of Research, at First Capital on the bond and equity market performance – 22.05.2019

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka. First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

The secondary market yield curve was seen once again recording a parallel shift downwards, on the back of heavy buying interest primarily centred on the short to mid tenor maturities. The shorter end of the curve witnessed a steep decline in the range of 7-15bps, while the benchmark 364-day bill was seen trading at an intraday low of 9.15 per cent. In the belly-end of the curve, maturities were seen dropping by 2-15bps, while the long tenors witnessed a dip in yields by 3bps.
At the primary bill auction held on 15 May, the three-month and six-month were accepted at a weighted average of 8.52 per cent and 8.88 per cent, respectively, while the benchmark one-year witnessed a steep dip by 26bps to record at 9.18 per cent following its previous week’s dip of 37bps. Post auction, on the back of buying interest one-year bill dipped further to close the day at 9.10 per cent.
Meanwhile, in the forex market, the rupee depreciated mid-week to Rs 176.74 from opening levels of Rs 174.90/10, thereafter, the rupee slightly appreciated to close the week at Rs 176.17.

Liquidity and CBSL Holdings
Market liquidity remained positive throughout the week to close the week at Rs 25.05 billion on the back of release of long-delayed payments by the Government. CBSL continued to drain out liquidity by way of repo auctions throughout the week at weighted averages ranging between 8.38 per cent and 8.59 per cent.

Foreign Interest

Foreign holding decreased by Rs 10.8 billion to record at Rs 143.7 billion. Foreign holding percentage dipped to 2.7 per cent from a previous level of 2.9 per cent.

Maturities for next Week
The Government Security Market has a Treasury bill maturity amounting to Rs 16.1 billion that needs to be settled week ending 24 May 2019.

Daily Summary
Thursday (09.05.19): In the secondary market, shorter end of the yield curve witnessed a steep downward shift with heavy demand, while the overall market witnessed moderate volumes. The one-year bill also recorded a notable dip to close at 9.15 per cent. During the morning hours of trading there was a slight increase in yields mainly centred on [15.03.24] maturity which traded at 10.62 per cent in the midst of profit taking. However, towards the latter part of the day, with buying interest it was seen trading at intra day’s low of 10.52 per cent. Furthermore, following maturities traded at their intra-day lows as [01.07.19] traded at 8.60 per cent, [15.12.20] at 9.60 per cent, [15.03.22] at 10.00 per cent, [15.07.23] at 10.40 per cent and [01.09.23] at 10.42 per cent. In the long end of the curve, [01.05.29] changed hands at 10.95 per cent.

Friday (10.05.19): Continuing positive sentiment drives secondary market yield curve downwards across the board reinforced with net surplus liquidity in the system including term repo, recording a high of Rs 89.24 billion. Buying interest was witnessed on the following maturities trading at intraday lows with the one-year trading at 9.15 per cent with considerable volumes, while [01.05.20] traded at 9.13 per cent. Foreign buying was seen on the 2021 maturities with [01.08.21] trading at intraday lows of 9.75 per cent and [15.10.21] at 9.80 per cent. Local buying interest was seen on [15.03.22], [15.03.23], [15.07.23], [15.03.24] trading at day’s low of 9.95 per cent, 10.25 per cent, 10.30 per cent, 10.40 per cent, respectively. In addition, [15.01.27] traded at 10.72 per cent with considerable volumes, as [15.06.27] traded at 10.80 per cent, while overall market witnessed high volumes.

Monday (13.05.19): The secondary market yield curve remained mostly unchanged with mixed activities, while the overall market witnessed high volumes for the day. In the short end of the curve, [15.12.20] traded in the range of 9.75 per cent-9.85 per cent levels, [15.03.22] at 9.90 per cent and [15.03.23] at 10.30 per cent. Mid tenor [15.03.24] witnessed high volumes trading at 10.40-10.47 per cent levels, while on the back of foreign buying, [01.08.24] traded at 10.46 per cent. Furthermore, in the midst of buying interest, the following maturities were seen trading at their intra-day lows: [01.06.26] at 10.67 per cent, [01.08.26] at 10.65 per cent, [15.06.27] at 10.75 per cent. In the long end of the curve, [01.05.29] changed hands at 10.86 per cent.

Tuesday (14.05.19): With the prevailing tensed situation mixed activity was witnessed in the secondary market with a slight upward shift in the yield curve amidst high volumes. Selling pressure was witnessed during the early hours of trading on the following maturities trading at their intraday high with [01.03.21], [01.05.21], [01.08.21] and [15.12.21] trading at 9.85 per cent, 9.88 per cent, 9.92 per cent and 10.00 per cent, while [01.05.21], [01.08.21] and [15.12.21] traded at 9.85 per cent, 9.88 per cent, 9.92 per cent and 10.00 per cent, and [15.03.23] and [15.07.23] traded at day’s high of 10.50 per cent and 10.48 per cent, respectively, In addition, [15.01.27], [15.06.27], [01.05.29] all traded at 10.80 per cent, while [01.05.29] traded at 10.92 per cent. During the latter session of trading, foreign buying was seen primarily centred on [15.03.24] at 10.50 per cent, while the one-year T-bill traded at day’s high of 9.25 per cent.

Wednesday (15.05.19): Selected mid to long tenure maturities were seen reaching intraday low amidst the buying interest, with [15.03.23] reaching 10.35 per cent, foreign buying led [15.03.24] to the day’s lowest of 10.41 per cent and [15.01.27] traded at 10.73 per cent, while the overall yield curve shifted slightly downwards, with overall market witnessing moderate volumes. At the primary bill auction, yield of three-month crawled to 8.52 per cent, six-month yield dipped to 8.88 per cent and one-year yield dipped to 9.18 per cent, recording a near eight-month low since September 2018. Post auction, on the back of buying interest, the one-year bill dipped further to close the day at 9.10 per cent, while three short term 2021 maturities ([01.03.21], [01.08.21] and [15.10.21]) traded at 9.65 per cent, 9.75 per cent and 9.85 per cent, respectively.